Fringe Benefits: Chapter 7 – Exemptions

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Chapter 7 – Exemptions

Earlier in this guide reference has been made to a number of situations where a benefit will not be taxed, or not taxed fully, as a fringe benefit. In addition to the situations mentioned above the rules will also provide for the following exemptions.

It is to be emphasized that exemptions provided for in these guidelines do not apply whenever the relevant fringe benfit takes the form of a cash allowance. Exemptions apply only when a payment or a reimbursement to an employee is made against actual receipts. Any ‘reimbursed’ receipts must be kept by the employer for any eventual inspection by the Inland Revenue Department.

HEALTH INSURANCE

Payments or reimbursements made, against actual receipts, for health insurance are excluded from the provisions of these guidelines and are not taxable in the hands of the beneficiary. In the case of directors or those in controlling positions within a company or partnership the exemption applies provided they benefit under the same conditions and within the same parameters, including value, of a scheme that is generally available to all employees.

TELEPHONY

Payments or reimbursements made for fixed or mobile telephones are excluded from the provisions of these guidelines and are not taxable in the hands of the beneficiary.

Payments or reimbursements made to employees in respect of the provision of telephony services are only exempt when made against actual receipts. Any form of cash allowance in respect of telephony services is taxable on the full amount.

COMPUTER EQUIPMENT

The use of computer and related equipment including the provision of internet services provided by an employer is excluded from the provisions of these guidelines and is not taxable in the hands of the beneficiary.

RECREATIONAL OR CHILD MINDING FACILITIES

Recreational or child minding facilities provided on an employer’s business premises for the benefit of the employees are exempt. Facilities of this kind provided on business premises of an associated company are similarly exempt.

GOODS CONSUMED ON PREMISES

Goods or services manufactured, produced or processed or otherwise treated by the employer as part of the employer’s business and provided to and consumed by employees on a working day on the employer’s business premises are exempt. Such would be the case where a brewery provides beer to its employees for consumption during a working day on its premises. Where the employer is a company the exemption is extended to goods provided and consumed on the premises of an associated company.

NEWSPAPERS

Newspapers or periodicals, or subscriptions to newspapers, periodicals and magazines or journals pertaining to the profession or trade relevant to the employee’s trade or profession and which are provided to employees for use for business purposes are exempt. This applies also to the provision of similar items by electronic means, such as internet facilities subscribed for by the employer. However, the exemption does not apply where there is no business use or where the business use is merely incidental.

SUBSCRIPTIONS TO PROFESSIONAL BODIES

Subscription fees paid by an employer in respect of an employee’s membership in a professional body are exempt subject that such membership is considered necessary for the carrying out of the employee’s work.

INSURANCE COVER WITH RESPECT TO DAMAGES

Insurance or indemnity paid by an employer for the purpose of providing cover against personal liability of its officers that arises out of the performance of the employee’s functions are exempt.

LONG SERVICE AWARDS

Long service awards granted in recognition of 15 years service or more are exempt provided the taxable value of the award does not exceed a specified maximum value (Lm50 per year of service) and that no similar award has been made to the recipient within the previous 10 years. Any awarded value which is in excess of the above will be taxable in the hands of the beneficiary.

SUGGESTION SCHEME AWARDS

Awards under suggestion schemes available to employees are exempt where the following conditions are satisfied:

  • there is a formally constituted scheme under which suggestions are made, and it is open to all employees (or all employees within specified grades) on equal terms;
  • the suggestion for which the award is made is outside the scope of the employee’s normal duties;
  • the award is of a reasonable amount;
  • this exemption does not apply to directors and persons in a controlling position.

CHRISTMAS PARTIES

An annual Christmas party or an alternative function of a similar nature, such as an annual dinner dance, which is open to staff generally is not deemed to constitute a taxable fringe benefit.

TRAINING COURSES/SCHOLARSHIPS TO EMPLOYEES

Certain expenses borne on behalf of or reimbursed to employees pursuing a course of further education or training are exempt provided the following conditions are met:

  • The training course leads to the acquisition of knowledge or skills which are (a) necessary for the duties of the employment, or (b) directly related to increasing effectiveness in the performance of the employee’s present or prospective duties in the employment, but it need not lead to the employee gaining a qualification.
  • The relevant expenses are (a) fees for the course, (b) the cost of essential books and course material.
  • Where the employee is temporarily away from his normal place of work while attending the course, relevant expenses also include (a) the additional expenses incurred in travelling to and from the course, and (b) reasonable payments for subsistence whilst on the course. If the course is held outside Malta the relevant expenses also include the cost of the journey and accommodation.

Note: The above does not override the exemption on scholarships provided for in article 12(1)(i) of the Income Tax Act as long as the conditions for that exemption are fully met.